KUALA LUMPUR: The Armed Forces Fund Board (LTAT) needs to be free of political appointees for it to prosper, economists said.
LTAT, they said, must have the right mix of directors and top management with exceptional skills and experience, and who are professionals.
The economists contacted by Business Times also said it is fair for pension funds such as LTAT to use non-cash profit in making dividend payment for their members.
Putra Business School economic analyst Associate Prof Dr Ahmed Razman Abdul Latiff opined that there is a need to address the root cause of LTAT's problems, which most likely stem from its management and board of directors.
"LTAT needs to ensure that they have the right mix of directors who possess exceptional skills, experience and professionalism. There shouldn't be any political appointees," he told Business Times.
Similarly, Ahmed Razman emphasised that the management team should consist of professionals with wide experience and skills in their respective disciplines.
He was commenting on the disclosure of the Auditor General's (AG) report that showed LTAT's reserves were in the negative and that the fund had used its non-cash profit to pay dividends to its members.
The disclosures came weeks after the resignation of the fund's three top officials while debt obligations at its wholly-owned Boustead Holdings Bhd need to be addressed.
Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan suggested that LTAT needs to diversify its investments because its current profits are too concentrated on its subsidiaries.
He noted that the diversification would make its other compehensive income (OCI) reserve more viable and ensure profitability.
"I think that's where the problem is, and for investments that are profitable, such as Affin Bank, in which LTAT has substantial shares. Those kinds of shares should be kept because every year they will give profit to LTAT.
"But the most important thing is to diversify, not depending too much on their subsidiaries. Boustead Holdings Bhd is a good example," he said.
Azmi also mentioned that LTAT's use of non-cash profit for dividend payments is fair for a pension fund.
This is because while it involves real cash, the dividends are credited into shareholders' accounts as non-cash dividends, as stated by LTAT.
"Since there's no actual cash flow, they don't require real cash to declare it as income and subsequently distribute it as a dividend from the non-cash profit. That's acceptable for LTAT as a pension fund," he added.
Azmi also pointed out that although the AG reported that its reserves had been negative for the past two years, LTAT clarified that this was primarily due to OCI.
"When combined with other reserves, it's actually positive, not negative. So, it seems reasonable for LTAT to provide an explanation about the OCI debt reflected in the negative statement," he said.
Defence Minister Datuk Seri Mohamed Khaled Nordin on Saturday reiterated that the negative balance in LTAT reserve, as flagged in the AG's 2022 report, was not accurate.
Last Friday, LTAT assured the public that its finances were still robust, and it can meet its obligations.
It also mentioned that its reserves were carefully managed according to regulations.
"We wish to clarify that the negative reserve of LTAT duly highlighted, is the OCI reserve, which is just one facet of the combined reserve.
"LTAT's combined reserve is composed of three components, namely, retained earnings, reserve fund, and OCI reserve, which, in combination reflects our financial stability," it said in a statement.
The statement follows the disclosure of the AG's report that showed the fund's reserves were in the negative of RM376 million in 2020 and RM258 million in 2021.
Despite the OCI reserve showing a deficit, LTAT said the combined reserve at the end of financial year 2022 (FY22) amount to a net positive balance of RM160 million, representing an improvement from the preceding year.
In 2022, the figure was a negative RM338 million.
LTAT noted that the unaudited post-dividend combined reserve for FY23 will see further improvement, reflecting its commitment to its transformation journey towards strengthening its financial position.
Prime Minister Datuk Seri Anwar Ibrahim had on Friday directed LTAT and the Federal Land Development Authority to submit full reports on their performance as outlined in the AG report.
Anwar, who is also the finance minister, stated that notices requesting clarification had been issued to both organisations.